Yeltsin and Russians Prepare For Harshness of Price Plan

By SERGE SCHMEMANN,

Published: January 2, 1992

MOSCOW, Jan. 1—
Russians will wake up on Thursday with the cost of their no-frills existence suddenly far, far higher. Their reactions to that fact will determine the success or failure of what amounts to a huge and fateful gamble by President Boris N. Yeltsin.

The long-anticipated "price liberalization" after years of artificially low fixed prices will let manufacturers, regional authorities and retailers set the prices of consumer goods and most food products. The Government will continue to set ceilings on basic food and fuels, but even those will be three to five times higher.

The basic concept of the reform is as simple as the actual plan is complex and riddled with uncertainty. If it succeeds, Mr. Yeltsin has said, life will begin to improve within six to eight months. If it fails, Russia could be launched into hyperinflation and social unrest. Unpredictable Reactions

Nobody knows exactly how high uncontrolled prices will go. Estimates range from 2.5 times to 4.5 times higher within the first three months, with wide differences expected among price levels in different cities and republics.

There is also no predicting how people will react. Even at the controlled prices, basic goods have been scarce since Mr. Yeltsin first announced plans for the "liberalization" in late October, causing hoarding by producers waiting for higher prices and consumers seeking to cushion themselves, as well as growing tensions in lengthening lines.

Most people appear to be awaiting the day with anxiety and confusion. Efforts to explain the measures, either by the Government or by the press, were marginal, and most people seemed unprepared to accept the possibility that prices will rise even higher.

Economists estimate that most Russians with average salaries already spend 80 percent of their income and innumerable hours per week on basic sustenance, and the increases could push them below the poverty line. What they will do in response is the major threat hanging over the drastic reform.

Mr. Yeltsin and his chief economist, Yegor Gaidar, have presented the increases as an unavoidable sacrifice on the road to financial stability and a free market. The Russian President has staked his considerable political capital on the reforms, taking the post of Prime Minister to personally absorb the backlash, and promising his people that "it will be hard, but the period will not be long -- we are talking of six to eight months."

Appearing on television this evening, an obviously nervous Mr. Gaidar admitted that the country was in for hard times. His ambition, he said only half in jest, was to resign in a year "under a loud outcry from an angered public, but with financial stability" for the next administration to build on.

The basic concept is to use "shock therapy" to wrench the economy onto basic market rails, somewhat as Poland did. As plotted by Mr. Gaidar, the swift increase in prices, drastic cuts in government spending and introduction of new taxes should wipe out the budget deficit and stabilize the ruble.

Within several months, that would restore value to the ruble, clearing the way for privatization, foreign credits and convertibility of the currency. A strong ruble, in turn, would undermine the current chaotic consumer system, in which barter, dollars, embezzlement and friends in the right places are all far more useful that the official currency in obtaining basic goods.

Restoring value to the ruble, in turn, would fuel basic market mechanisms and set Russia along with its neighbors in the new Commonwealth of Independent States on the way to a new life. Plan Called Too Harsh

Nobody except die-hard Communists seriously disagree with the need to stabilize the ruble and introduce a free market.

"A freely set price is the worst means of bringing seller and buyer together, except for all the other means," wrote the newspaper Izvestia, summarizing the prevailing view.

But Mr. Gaidar's scheme has come under considerable fire from critics ranging from the Russian Vice President Aleksandr Rutskoi to Grigory Yavlinsky, the author of several previous radical plans for fundamental economic change. They have asserted that the plan is unnecessarily harsh, and perhaps worse, futile.

Mr. Yavlinsky has argued that without preparatory mechanisms in place -- without a budget, without privatization -- the price increases will have little more effect than those tried by Mikhail S. Gorbachev's Government in April -- whose only effect was to increase prices. Pushed Into Poverty

The basic criticism is that raising prices will not substantially increase food supplies, since there is no more food, and since there are no real alternatives to state and collective farms.

In the absence of real market forces, said Sergei A. Zverev, an assistant to Mr. Yavlinsky: "This is not 'price liberalization' but simply the decentralization of price setting. There is no orientation on market forces, there is no federal-reserve system, no way to gauge the money mass."